EU court gives guidance on insurance contract transparency requirements

The Court of Justice of the EU (CJEU) gave guidance on how to interpret provisions laid out in the Unfair Terms in Consumer Contracts Directive in a case referred to it from France. In that case a man has challenged the fairness of a term in an agreement he reached with an insurer.

Jean-Claude Van Hove bought insurance cover from CNP Assurances to cover most of the cost of mortgage repayments in the event he became totally incapacitated for work. Van Hove suffered a workplace accident in 2000. He has taken legal action against CNP Assurances after the insurer stopped its mortgage repayments cover after a doctor assessed Van Hove as being fit to work on a part-time basis.

According to the CJEU's judgment, Van Hove has argued that the insurer's contract term is unfair because it "causes a significant imbalance" between him and the insurer to his detriment. This is because the term "makes provision of cover by the insurer conditional upon it being completely impossible for the insured person to take up any activity, paid or otherwise", he has claimed.

Van Hove has also claimed that CNP Assurances' definition of 'total incapacity for work’ is "worded in such a way as to prevent a lay consumer from being able to grasp its full significance".

The CJEU said that to determine the outcome of Van Hove's case, the French court must first determine whether the term that Van Hove has complained about "falls within the main subject-matter" of the contract and, if it does, whether it has been "drafted in plain, intelligible language".

Under the Unfair Terms in Consumer Contracts Directive contract terms are considered 'unfair' if they have not been individually negotiated and cause "a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer", contrary to the requirement that the parties act in 'good faith'.

According to the Directive, 'unfairness' should be assessed in the round, "taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent".

However, the Directive makes clear that neither "the definition of the main subject-matter of the contract" nor "the adequacy of the price and remuneration" that is traded for services or goods is relevant to the assessment of the unfair nature of consumer contract terms so long as those terms are "in plain, intelligible language".

Explaining what those provisions mean in practice, the CJEU said that the French court must first assess the term that Van Hove has complained of in the context of the "the nature, general scheme and the stipulations of the contractual framework of which it forms part" as well as to its "legal and factual context".

It said that if, having made this assessment, the French court finds that the term "lays down an essential component of that contractual framework, and, as such, characterises it" and is outlined in "plain, intelligible language" then it can escape the test for unfairness.

The CJEU detailed what insurers need to do to pass the 'plain, intelligible language' test.

"[The contract term must] not only [be] grammatically intelligible to the consumer" but the contract must set out "transparently the specific functioning of the arrangements to which the relevant term refers and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms, so that that consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it".